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An Introduction to the Bond Markets

An Introduction to the Bond Markets

Patrick J. Brown

ISBN: 978-0-470-03074-5

Jul 2006

242 pages



This book gives an introduction to the bond markets for practitioners and new entrants who need to understand what they are, how they work and how they can be used, but do not want to be intimidated by mathematical formulae. By the end of the book readers will be able to decide whether to invest in the bond market. The mathematical formulae will be relegated to the appendices and supplemented by a companion website which allows users to enter their own bond market investments, to simulate anticipated events and see the results.
  • Patrick Brown is well-known as Chairman of the European Bond commission (recently retired)
  • The only bond book that does not rely heavily on mathematical formulae


1. What is a Bond and Who Issues Them?

1.1 Description of a bond.

1.2 The difference between corporate bonds and equities.

2. Types of Bonds and Other Instruments.

2.1 Fixed-rate bonds.

2.2 Floating-rate notes.

2.3 Index-linked bonds.

2.4  Hybrid bonds.

2.5 Other instrument types

3. How Do You Price and Value a Bond?

3.1 Compound interest.

3.2 Discounting and yield considerations.

3.3 Accrued interest.

3.4 How bonds are quoted.

3.5 Bond pricing.

3.6 Yields and related measures.

3.7 Floating-rate notes.

3.8 Real redemption yield.

3.9 Money market yields and discounts.

4. Bond Options and Variants.

4.1 Callable bonds.

4.2 Putable bonds.

4.3 Convertible bonds.

4.4 Dual currency bonds.

4.5 Mortgage-backed securities.

4.6 Collateralized debt obligations.

4.7 Bonds with conditional coupon changes.

4.8 Reverse floaters.

4.9 Bonds with warrant attached.

5. Yield Curves.

5.1 Yield curve shapes.

5.2 Zero-coupon or spot yield curves.

5.3 Forward or forward-forward yield curves.

5.4 Par yield curves.

5.5 Investment strategies for possible yield curves changes.

6. Repos.

6.1 Classic repos.

6.2 Sell/buy-backs.

6.3 Stock borrowing/lending.

7. Option Calculations.

7.1 Buying a call option.

7.2 Writing a call option.

7.3 Buying a put option.

7.4 Writing a put option.

7.5 Theoretical value of an option.

7.6 Combining options.

8. Credit and Other Risks and Ratings.

8.1 Credit risk.

8.2 Liquidity.

9. Swaps, Futures and Derivatives.

9.1 Swaps.

9.2 Credit risk in swaps.

9.3 Swaptions.

9.4 Futures.

9.5 Credit default swaps.

10. Portfolios and Other Considerations.

10.1 Holding period returns.

10.2 Immunization.

10.3 Portfolio measures.

10.4 Allowing for tax.

11. Indices.

11.1 Bond index classification.

11.2 Choosing indices.

11.3 Index data calculations.

11.4 Index continuity.

Appendix A: Using the Interactive Website.

Appendix B: Mathematical Formulae.